In at interview to CNBC-TV18's Anuj Singhal and Surabhi Upadhyay, SP Tulsian of sptulsian.com shared his readings and outlook on the fundamentals of the market and specific stocks.
Below is the verbatim transcript of the interview.
Anuj: First thoughts on oil marketing companies (OMC), whether you will buy Hindustan Petroleum Corporation (HPCL) at Rs 520 or Bharat Petroleum Corporation (BPCL) at Rs 670 or do you think most of the good news is in the price now and these stocks could correct more?
A: I will probably go and buy HPCL because from tomorrow, we will be seeing the dynamic pricing which will be fixed everyday and maybe market has not understood and taking that as a risk factor. But if you see the situation going forward against, HPCL will be going ex-bonus, maybe probably in next couple of weeks or in next one month. And I do not see any of the problems seen in the performance.
In fact the volatility which we have been seeing more in case of HPCL, post the Q4 numbers, you have seen the stock moving to a high as Rs 570 from a level of about Rs 515-520 just immediately by about 11-12 percent immediately after announcements of the results within one hour. That shows that there is under ownership in the stock. People are in fact not holding the stock in cash as investor, but holding some positions in the future and options. And that is probably keeping the weak trajectory on the stock.
I am not saying that the things are in fact negative today for all the OMCs because of this dynamic pricing seen coming in from tomorrow and maybe the weak crude because people are expecting that there will be inventory losses to be incurred by these companies, but I think that this dynamic pricing of daily fixing will really prove quite beneficial for this OMCs instead of playing on the inventory gains or losses which is speculative in nature. The core margins will remain intact which is very beneficial and very prudent for any OMC. So I will take an investment call on the stock on HPCL only now at the current level.
Surabhi: Just to talk about what Reliance Industries has been doing. Yesterday was one big day for the stock. Today there was a lot of follow-up buying that we have seen. What do you think could be the biggest trigger? Is this fuel retailing, if that comes through, is that exciting the market? We have seen some brokerage notes talking about how Jio is retaining subscribers. Is that the big trigger now for the stock?
A: If I take a call first the background. If you see in January, 2011, BP have put in about Rs 32,000 crore in the company for 30 percent stake or the interest in that 23-24 oil blocks. And I need to take a call, I only see one possibility happening is that company or Reliance Industries wants to come in a big way in marketing.
But there are again two or three riders to this. Firstly, I do not think that the OMC in isolation can work without having their own refinery. If you take the situation here in case of our three OMCs, HPCL again maybe having the refining capacity of about 16-18 million tonnes if I do not include 15-16 percent stake which they are owning in Mangalore Refinery and Petrochemicals (MRPL) with outlet of about 15,000.
Similar is the case with BPCL. Indian Oil Corporation (IOC) has marketing outlet of about 28,000 outlets with a refining capacity of some 50 million tonnes. So honestly, if you really ask me, I do not think that a player like BP will only be interested to join hands with Reliance Industries purely for marketing of the oil products, number one. Number two, if you see the oil consumption growth that is petrol and diesel, if the consumption growth has been at about 4 percent and as I said, about 28,000 outlets are owned by HP and BP, that is 14,000-15,000 each and about 28,000 by IOC. That means you have about 60,000 outlets already operating.
I am not including the Essars of about 300-400 outlets and maybe Reliance of about 1,300 outlets. But even if you see private sector outlets are capable to deliver 3x output what the PSU, there is a very low productivity in case of the petrol pump which are operated by these three OMCs. So suppose if you have an aggressive rollout plan for the retail outstations, that is fuel retail outstations, it has to be minimum 5,000 outlets. So do you have that kind of, 5,000 means equivalent to 15,000 outlets equivalent to HPCL? Do you have that kind of consumption growth coming in into the country? I do not think so.
So maybe if I just try to because if the press conference, if such a big announcement is happening, there has to have some agenda. So maybe I can only throw a wild possibility of the oil marketing company along with some kind of participation or a tie up in the refining where probably company may look to expand the capacity to 100 million tonnes in the refining front because today, they have about 63-64 million tonne.
And mind it that couple of years back, Reliance has been very ambitious in giving 100 million tonne refinery target which they have kept on hold for some reason or the other because their management bandwidth or maybe the capex has gone into a big extent on the telecom sector that is Reliance Jio.
So this could only be the possibility in respect to the refining creating big capacity of 100 million tonne with BP taking the interest in the existing setup along with the marketing rollout plan of about 4,000-5,000 outlets because if you recall Reliance closed about 4,600-4,700 retail outlets when this administered price mechanism did not dismantle and the rollout plans did not happen or the marketing was not seen beneficial for the private sector because of the non-availability of the subsidy factors.
Anuj: Fortis Healthcare has moved 6 percent higher. Sock on your radar? Fortis, have you tracked it?
A: I am not tracking it that closely but yes this deal is likely to happen and we have been taking a call on the Apollo Hospitals because if you compare the market cap or maybe the enterprise value (EV), market cap of Rs 10,000 crore plus for Fortis against Apollo of Rs 18,000 crore and even the profitability and EV on all parameters, the Apollo Hospitals looks good. But maybe after seeing the broad contours of the deal which are likely to see the change of management and followed by the open offer, then we may take a renewed call thereafter.
Anuj: A word on Aurobindo Pharma. Clearly the bottom has been made but one of the select stocks in pharma basket that you like. From the lows, it is now up some 25 percent now, more gains possible here?
A: I do not think that more gains are possible in the near-term but you are right because if you see the kind of surge we have seen post the Q4 numbers which have been really very good and then you have seen the US Food and Drug Administration (FDA) news coming in for some of the drugs today. So that process will continue, but maybe if you keep a view of about six months and we have been in fact giving the buy call on this stock. This has been our top pick followed by Glenmark Pharma and Divis Laboratories. Only on the ground that things have seen to have bottomed out and the recovery process will start.
So I do not think that the near-term possibility, near-term means I qualify that as a 4-6 weeks, I do not see much upside happening. There may not be more than 3-5 percent, but I am holding quite positive view on the long-term basis or maybe on the medium-term basis.
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